Government reveals super changes

Clancy Yeates

People with more than $2 million in superannuation will be forced to pay tax during the pension phase, rather than receiving the payments tax-free, under new changes announced by the Gillard government.

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The change is only likely to affect people with about $2 million in superannuation assets.

Instead of drawing down their superannuation tax-free, people affected by the reforms would be forced to pay 15 per cent tax on their superannuation.

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‘‘From 1 July 2014, earnings on assets supporting income streams will be tax free up to $100,000 a year for each individual,’’ Mr Swan said in a statement on Friday.

‘‘Earnings above $100,000 will be taxed at the same concessional rate of 15 per cent that applies to earnings in the accumulation phase.’’

‘‘For superannuation assets earning a rate of return of 5 per cent, this reform will only affect individuals with more than $2 million in superannuation assets supporting income streams,’’ Mr Swan said.

Treasury has forecast the changes will affect 16,000 people, and save the budget $350 million over the forward estimates.

Over the longer term, the benefits to the budget are likely to be much larger. The change, alongside last year’s move to raise super contribution taxes on people earning more than $300,000, would save the budget $10 billion over the coming decade, Mr Swan’s statement said.

The changes were announced as part of a series of measures the government argues will make the $1.4 trillion superannuation system more sustainable.

"As well, it will cap concessional super contributions at $35,000 for anyone over the age of 60 from this July. People over the age of 50 will be able to access the cap from July 2014."

It will also increase the threshold at which inactive superannuation accounts are transferred to the Tax Office.

Currently all inactive super accounts of less than $2000 where the owner cannot be contacted are transferred to the tax office. From December 2015 the threshold will be raised to $2500 and from 2016 it will increase to $3000.

The government expects this change to save $123 million over the next four years.

'Not much happening'

ARC Future Fellow at The University of Sydney Michael Rafferty said the announcement was a watered-down version of Treasury's original proposals and a win for the finance sector.

‘‘After all the colour and movement, not much is happening,’’ Mr Rafferty said.

‘‘What other industry would be able to get the government to announce its budget a month beforehand... and after all the options, the best they could come up with is save $10 billion over 10 years, most of which will occur in the final years of that 10.’’

"It's not going to affect the industry much and those people saving in super with over $2 million it's still a tax-effective vehicle and they were never going to touch the age pension,’’ he said.

"Bill Shorten is going over to China to market the fund management industry in Australia. This is an industry that costs Australia $20 billion a year in fees and charges."

Pauline Vamos, the chief executive officer of the Association of the Super Funds of Australia, said it was good to see clarity and "long-term thinking" on super, and she was now hoping for a quiet budget night in May.

"The government promised that the majority of people would not be impacted, and they've made good on that," she said.

"It's very pleasing that a lot of the rumours around hitting people on $180,000 or rumours around $1 million (super balances) have now been scotched."

Ms Vamos welcomed the raising of the contribution cap, saying it would allow people who've been out of the system, particularly women, to top up their balances. She also praised the change to the tax treatment of deferred annuities, saying it was timely given the ageing population."

Ms Vamos said she believed the changes quelled some of the concerns raised about the sustainability and inter-generational equity in the super system.

"We could always improve the system and that should the aim," Ms Vamos said.